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Any company that sells goods or services must charge sales tax on those goods and services, unless the company is based in a state that does not assess any sales tax. Nonprofits typically are exempt from paying sales tax and, depending on the state, certain goods or services may also be exempt. When a company makes a sale that assesses sales tax but never receives payment from the customer, that company can recover the sales taxes it paid.

Sales Tax

States charge sales tax on tangible personal property, tangible business property and intangible business services. However, some states may limit the services they assess sales taxes against. For example, Massachusetts only applies service-related sales taxes to the sale or lease of telecommunication services. In addition, some states -- including Alaska and Oregon -- do not charge sales tax. Sales tax percentages vary by state, typically ranging between 5 to 8 percent. Cities and counties often assess between 0.5 percent or 1.25 percent on top of the state sales tax.

Sales Tax Collection

The retailer or vendor applies the sales tax at the time of the sale or upon the creation of the sales invoice. The buyer pays the sales tax at the time of purchase or upon payment of the invoice; the retailer or the vendor then remits the tax to the state. In most states, however, a car buyer pays the sales tax directly to the state when she transfers the vehicle’s title.

Recovery

State laws allow a vendor, retailer or service provider to recover the taxes -- or credit for the taxes -- he paid on behalf of a customer if he never actually received payment for the product or service. For example, say ABC Company sold $500 in goods to F&G Plumbing on trade credit. ABC Co. sends F&G Plumbing an invoice for $536.25, which equals the $500 sale plus a 7.25 percent sales tax assessment of $36.25. However, F&G never pays the invoice. ABC had already reported the $500 as revenue on its income statement and included the $36.25 in the quarterly sales tax payments it remitted to the state. ABC decides to write off the $500 due from F&G. The $36.25 tax on goods it never collected payment on is eligible for sales tax recovery.

Claiming Reimbursement

In most states companies must submit a formal bad debt reimbursement claim quarterly or annually to receive reimbursement for their bad debts. The criteria for claiming reimbursement vary by state; some states use bad debts denoted on a company’s annual tax forms. States will issue a credit against future sales tax remittances or a refund. If a company later receives payment, for example, through a settlement or lawsuit judgment, the company that received the refund must redeclare the revenue and sales tax in the next quarterly sales tax remittance.

About the Author

Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.